A thirst for control: water privatisation

During the past decade or so, international trade agreements have been dramatically expanded to encompass affairs that had always previously been strictly matters of domestic concern.

Water is just one example. Furthermore, investment treaties like the North American Free Trade Agreement have simultaneously expanded corporations’ powers and minimised their obligations. These investment treaties have had a highly deleterious effect on government efforts to promote health, environmental protection and other social goals.

They have been invoked or threatened on at least five occasions to challenge government actions concerning water or water services.

1 Methanex vs the US The Canadian-based Methanex Corporation sued the US government for $970m in damages because of a 1999 ban by California and other US states on the fuel additive the company manufactures. The additive was banned because it has become a major contaminant of ground-water.

2 Sun Belt vs Canada The US-based firm Sun Belt Water Inc sued the federal government of Canada for $10 billion, because the Canadian province of British Columbia put a moratorium on the corporation’s plans to export local water to California. Sun Belt claimed that the ban expropriated its future profits.

3 Vivendi vs Argentina Vivendi subsidiary Compania de Aquas del Aconquija sued the federal government in Buenos Aires for $300m when a water and waste-water privatisation in Argentina went sour. The corporation alleged that its investor rights were offended by public health orders, mandatory service obligations and rate regulations.

4 Bechtel vs Bolivia Bechtel affiliate Aguas del Tunari demanded more than $25m from the Bolivian government for cancelling the privatisation of water services in the city of Cochabamba. The government had cancelled the privatisation when the local population reacted with fury to unaffordable water-rate rises imposed by the corporation.

5 Metalclad vs Mexico In Mexico the US waste-management company Metalclad demanded that Mexico paid it more than $15m, because the impoverished rural municipality of Guadalcazar refused to grant it a building permit for a 650,000-ton per year hazardous waste facility. Adapted from Thirst for Control, a report by the international campaign against water privatisation the Blue Planet Project

Corporate masks of public concern

To achieve their goals water corporations must overcome a number of obstacles, the most important of which is government. As public service providers, regulators and owners of water resources, governments can play a crucial role in safeguarding the environment, universal access to resources, water quality and public health.

This places them in the way of corporate growth and profit. Therefore, the realisation of corporate objectives depends upon reducing or even eliminating these traditional government roles. Strategic partnerships developed between the global water companies and international financial institutions have provided an effective strategy for bringing this about.

The two most notable of these partnerships, the Global Water Partnership and the World Water Council, were founded in 1996. They provide an arena for negotiation and collaboration between the major water companies, multilateral banks, UN and bilateral development agencies and NGOs. Through these partnerships, the economic motives of the major water companies become rationalised as, or embedded in the facade of, broader public interest objectives.

Although the southeastern French city of Grenoble had efficiently managed its water for more than a century, a decision to privatise the service was made in October 1987. A 25-year contract was awarded to Suez subsidiary Cogese. In a letter to Grenoble mayor Alain Carignon (left), Suez executive Jean Jacques Prompsy promised: ‘You can be sure that our company won't spare any effort to serve the population of Grenoble and you as you deserve.’

Cogese apparently felt that Grenoble's population deserved higher bills. ‘From the very beginning of the privatisation, our water bills skyrocketed,’ said Vincent Comparat, a leading local activist against the privatisation. The people of Grenoble reacted angrily, and a series of letters to the regional prosecutor in Lyon led to an investigation of the privatisation deal. As part of the contract, Cogese had to pay ‘entry fees’ worth about $35m to the city government.

To recover the fees, Cogese increased consumers’ water charges. It also reported fraudulent losses to justify fictitious interest payments. By 1993, Cogese was reporting a debt service of more than $1m. Its actual debt payments were less than $400,000. In addition, the contract with Cogese also penalised the city for conservation. The company was allowed to increase the price of water if consumption fell below 12.8 million cubic meters a year, which meant an immediate price increase since consumption levels in the city were falling, for reasons that are not entirely clear.

Cogese was, in fact, little more than a shell company sub-contracting most services to Suez at inflated prices. These services included accounting, insurance, property management, customer services, technical assistance, equipment procurement and information technology.

After the French courts cancelled the Grenoble contract and returned water services to the city, customers’ prices fell immediately. By the end of 2002 the price of water in Grenoble was at 2.14 euros per cubic metre. Few French cities paid less for their water. In nearby Saint Etienne, a city of comparable size, a cubic metre cost 3.76 euros. But an independent accounting authority reported that if the Cogese contract had continued for its full 25 years, it would have cost the population of Grenoble an additional $145m.

Julio Godoy wrote this article for the International Consortium of Investigative Journalists, a project of the Center for Public Integrity

Water Rats

• André Fougerousse resigned as mayor of the northeastern French town of Ostwald in 1991, when he was accused of receiving illegal payments from Suez, Générale des Eaux (Vivendi) and Saur. The three water companies allegedly financed his holiday trips and paid 500,000 French francs to the Ostwald municipal government, which used the money to pay Christmas bonuses. Fougerousse did not deny the accusations but claimed they were normal, arguing that other elected city officials had enjoyed similar favours.

• In 1996 Vivendi's deputy director general Jean-Dominique Deschamps was found guilty of paying illegal commissions to political parties in exchange for obtaining water contracts in approximately 70 French cities. Deschamps was sentenced to 18 months in prison and fined $27,000.

• In 1997 the former mayor of the southern French town of Angouleme, Jean-Michel Boucheron, was sentenced to two years in prison and fined $172,000 for taking a $55,000 bribe from Vivendi. In return for Boucheron's approval of a water-distribution contract, Vivendi put him on its payroll for a job that did not exist.